REAL Republicans are for Strayhorn

Thursday, June 15, 2006

Texas Monthly Skewers Perry's Tax Scheme

Texas Monthly just released an article about the race for governor and the article shines a light on the gross flaws in Perry's tax scheme offers some insights into the political future of anti-tax fighters like Strayhorn and Hotze and Patrick. Here are some highlights:

[Strayhorn] has kept up steady pressure on Perry over the years—for example, by urging him to fully fund the Children’s Health Insurance Program with money that she would certify was available. He didn’t, of course. I happened to attend a gathering at which she was present while that skirmish was going on, and she was genuinely puzzled by Perry’s unwillingness to do what she thought was the right thing. It was hard for her to grasp, having come of age in the conservative Democrat era, when state government was conservative but not ideological, that someone would put ideology ahead of policy.

Her most recent salvos have been a pledge to repeal Perry’s business tax if she becomes governor and a description of the funding for the impending property tax cut as a “$23 billion hot check” over five years. In the Perry-Strayhorn feud, no opportunity for one to slight the other is to be missed, so when she called a press conference in late May to sign House Bill 1, the bill that cut property taxes and raised teachers’ salaries, I knew it wouldn’t be a routine event. “I am certifying this bill,” she said, “but that does not mean it is good public policy. …The governor is not telling the people of Texas the truth. He is exaggerating, inflating, and misstating what the average homeowner is going to see cut on his or her tax bill by more than three hundred percent.” How much is the tax cut worth in the first year? “Fifty-two dollars,” she said. “You will be able to buy one more Coca-Cola out of a vending machine each week.” ...

The bad news, however, is very bad indeed: For the sake of ideological purity, the Republican leadership would not allow the revenue from the new business tax and other new taxes passed by the Legislature to be spent on the public schools in future years. The Legislature tied up every dollar from the new taxes so they could be used only for future property tax reductions. Tax cuts, it seems clear, have replaced education as the number one priority of state government.

But that isn’t all there is to worry about. In order to achieve the cut, the Legislature must use the new business tax revenue to replace the money school districts will lose by no longer being able to tax at the old, higher rates—which means, believe it or not, that the tax cut is actually a spending program as well. This is no esoteric lesson in public finance. The state budget is subject to a constitutional spending cap; the growth in state spending cannot exceed the rate of economic growth, even when some of that spending is dedicated to replacing money cut elsewhere. It’s too early to know how the numbers will work out, but education advocates are deeply worried that when legislative leaders determine the new spending cap this fall, there will be little extra money for the state to put into public schools.

And here’s something else to worry about. In its determination to reduce property taxes by one third and increase spending on education, the leadership promoted a plan that did not balance. The new taxes do not cover the cost of the tax cuts and the new spending on education—which is why Strayhorn described the funding as a “hot check.” To make up the difference (around $4.5 billion), the Legislature dipped into the $8.2 billion budget surplus, which is largely the result of a healthy economy and high oil and gas prices. Unless the business tax raises a lot more money than it is projected to, legislative leaders will have to do the same thing next year and the year after that. In 2009 and 2010, leading up to the next gubernatorial election, the gap between projected revenue and the cost of HB 1 is $11.6 billion, an unheard-of figure in this state. That check is not just hot; it’s radioactive. So the tax cuts not only have first claim on all the revenue from the new taxes but will almost surely require dipping into future surpluses, leaving less money for education, health care, and other state responsibilities. What happens when the economy suffers an inevitable downturn and there’s a shortfall instead of a surplus? One of two things: a tax increase or budget cuts—and you know which one the Republican leaders will choose. One crisis is solved; another is born.

But even that isn’t all there is to worry about. In the past, school districts always had the ability, without going to the voters, to raise money through tax increases (and by taking advantage of rising property values), although such increases were subject to rollback elections. The new legislation allows districts to raise their tax rates by 4 cents per $100 of property valuation, one time, without an election. After that, any tax increase must be approved by the voters. Whether done intentionally or not, the lasting effect of the great tax cut of 2006 may be to achieve the fiscal conservatives’ dream of starving the public school beast....

Strayhorn is not at all a typical independent candidate. She has been a statewide Republican officeholder, and she had enough of a following in 2002 that she led the entire GOP ticket, finishing some 246,000 votes ahead of the next-best vote getter, a fellow named Rick Perry. Her dustups with the governor are bound to have caused some erosion in her support among Republicans, but she remains much better positioned than a Democrat to win the votes of fiscal conservatives who are irate about the new business tax (notwithstanding the fact that the property tax cuts are projected to exceed the revenue from the new taxes by $1.7 billion in the first year and $2.5 billion the next year, which makes the effect on the state budget an overall tax decrease). In the closing days of the special session, Steven Hotze, a well-known conservative activist from Katy, e-mailed a lengthy screed (“Action Alert for Conservative Republicans”) to his followers, calling upon them to “Urge the Governor to Veto” the new business tax. Among his numerous objections: “School tax reductions will be minimal and temporary.” “There are no taxpayer protections in any of Governor Perry’s bills.” “Governor Perry made no attempt to pass a bill imposing caps on property appraisal values.” “State government has an $8.2 billion surplus which could be used to buy down the property tax rates making the tax increase necessary.” Poor Perry. He finally exercises leadership, backs a bill that will raise enough money for the property tax cuts Republican leaders have been promising for years, patches a school finance system that the Texas Supreme Court had declared unconstitutional, and even agrees to spend more money on education (math and science programs and a $2,000 teacher pay raise), only to have his base turn on him.

The Strayhorn campaign’s expectation is that she and Bell will remain fairly close together until she starts running TV ads. Then Bell will drop off the radar screen and Democrats will care so much about beating Perry that they will forsake their party ... It has been obvious for at least two years that she was going to run against Perry, and she has attacked him relentlessly during that time. But her weapon has been a shotgun; she fires scattershot blasts at the governor’s toll road program, his “pork-barrel spending” for economic development, his new business tax, and the $40 billion growth of the state budget during his watch. ...

The split between the traditional conservatives and the activists is likely to get worse following the primary victory in a Houston state Senate race by radio talk show host Dan Patrick, an outspoken fiscal conservative who could play the role of enforcer on the Senate floor. ... Patrick, who has bought a Dallas radio station to carry his conservative message into North and East Texas, has to be considered as a possible 2010 candidate on Dewhurst’s right.


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